Foreclosure Auctions: How I Made $20,000 in 30 Days
I’ve been buying foreclosures since 2003. I’ve prided myself on being thorough with my research before making the decision to buy foreclosure real estate. The more information that I had about a property, such as repairs, improvements, etc, the better odds I had of earning big profits.
I was able to be successful at this because I usually bought my properties directly from the bank or the homeowner, where I was able to bring my team in to inspect the house before we bought it. I have also bought properties at sheriff foreclosure sale auctions. However, this type of purchase is a completely different animal. Why? Because you can’t view the property before you buy it. The reason? Because the property is still owned by the foreclosed homeowner until the sale is final. Unless they will let you in their home to view it, you are purchasing it sight unseen.
There are ways to decrease your risk, however. Not being able to view the home prior to buying it is not the only problem. Foreclosure auctions are not like regular purchases. With a regular purchase, you would normally put a small percentage of the purchase price down and your bank would finance the rest. You can’t do this at a foreclosure auction. Cash is king here, as they don’t accept mortgages. The terms of purchase are generally 10% down the day of the foreclosure auction, with the remaining balance due within 24 hours. If a buyer can’t come up with the rest of the money, he or she will lose their deposit and the property will either go to the next highest bidder or be put back on the auction block.
In my book, The Foreclosure Revolution, I told a story of how I made $20,000 because I was able to make a train ride. Here’s the story: I was trying to buy a townhouse from a homeowner in foreclosure. He had four mortgages on the property and the banks were unwilling to work with me on a short sale. That meant that his house was going to a sheriff sale. Fortunately for me, I was able to see the inside of the house and inspect the property (since I was trying to buy it directly from the owner). I was able to accurately factor into my maximum bid the cost of interior repairs, which was a huge advantage over my competition.
If I was lucky enough to be the winning bidder, I had no intention of keeping the property long term. I wanted to sell it as quickly as possible and make a nice profit. Before the sale, I showed it to a Realtor looking for a good investment property. She told me that she liked it and also what she was willing to pay for it. I told her that I would let her know if I could sell it her for that price. Since I didn’t own the property yet, it all depended on me being the highest bidder for the house at the auction.
The day of the sale, I got to my office bright and early. I already had my certified check in hand, and went over some last minute research. I lost track of time and almost missed my train to downtown Chicago. I couldn’t believe how close I had been to missing it. If I showed up just 30 seconds later, I wouldn’t be telling this story. Luckily, I did make it. I called my business partner from the train to let him know that I was on my way to the sale. We knew what our maximum bid would be, but we went over it one last time to be sure.
When I finally arrived downtown, I realized that the auction had already begun. Foreclosure auctions usually have many properties up for sale on the same day, although there are times when there are only a few for sale. I was hoping that the property that I was interested in would be one of the last to go for sale, since I was running late. I ran up the stairs as quickly as possible and walked in the auction room with a property already up for sale. They didn’t have big boards or projectors to tell the audience which property was for sale; all they did was announce the address and the case number prior to putting it up for bid. Since I was late, I couldn’t tell which property was for sale? Was it the one that I wanted? I couldn’t interrupt the auctioneer, so I turned to the person sitting next to me and looked at his auction schedule. He had his pencil fixed on the house that I wanted to buy. Did that mean that my property was the one currently up for bid? I still couldn’t be sure. I listened to the bidding activity and the price was where the property I wanted should be. I still couldn’t be sure. Finally, I heard the auctioneer say, “Going once, going twice…” What could I do? I had to make a move. I finally shouted “$93,000!” Everyone in the room just stopped and looked at me. They probably wanted to know if I was joking. I had literally just walked in the room in the middle of the auction and now here I am throwing around money to buy real estate. They thought I was crazy. The bidding continued until I finally won at $104,000. When I got up to bring my check to the auctioneer, I asked “So what did I just win?” The room erupted with laughter. The auctioneer told me the address, and fortunately it was the house that I wanted. I felt relieved.
That night I called the Realtor who was interested in buying the property. I told her that I won it at the auction and could meet her price. I sold it to her for $124,000, and we closed a month later. I didn’t do any work to the house. I didn’t even use a broom to sweep it. I made $20,000 profit in just 30 days!
Foreclosure auctions are a great way to buy undervalued properties and make large profits, but you need to be careful. You can also lose a lot of money if you buy a property that needs a lot more work than you anticipated. Next week we will cover how to maximize your opportunities buying properties at foreclosure auctions and sheriff sales.
If you want more information about foreclosures, you can get my book, The Foreclosure Revolution. Just go to www.joesesso.com for more information.